The domestic automobile industry is facing a major
threat from the application of the WTO conditionalities

By Syed M. AslamDec 03 - 09, 2001

While the progressive car assembling industry managed
to improve its overall profitability, it registered marginal growth in
terms of production and sales in the year ended June 30, 2001. In
addition, the combined production capacity of the local auto industry
remained unutilized during the same period.

The annual reports of three major car manufacturers
— Suzuki, Toyota and Honda — show that they collectively produced
38,164 units in 2001 compared to 36,391 the previous year, depicting a
marginal growth of less than 5 per cent.

Suzuki which produces a range of 800-1300 cc cars,
light commercial vehicles and jeep produced 19,139 units which was not
only 6 per cent less than the 20,404 units it produced last year but
also its lowest production volume since 1996. It was way below then the
highest units produced by the company in 1999 — 32,805. Suzuki, which
has a plant capacity of 50,000 units (double-shift basis) managed to
utilize only 38 per cent of the capacity blaming the lower production on
depressed market demand due to persistent economic recession on the one
hand and competition from new entrants on the other.

Indus Motor, which manufactures of a range of Toyota
cars and trucks in 1300 cc to 2000 cc car segment, bettered its
production volume by over 17 per cent from 11,243 units in 2000 to
13,201 units in 2001. Indus managed to sell 13,942 vehicles and claimed
that it was able to achieve a market share of over 50 per cent in the
1300 cc to 2000 cc car segment but said that the sales of four-by-four
Hilux trucks dropped due to increased competition.

Honda's contribution in the overall car production is
the lowest in terms of number. Of the 38,164 units collectively produced
by the three major manufacturers just about 15 per cent or 5,824 units
were produced by Honda Atlas Cars. However, the number was the highest
ever produced by the company when it produced 4,840 units in 1995. Honda
attributed the growth in the automobile industry due primarily to
increase in sales through leasing and other financial schemes which
contributed some 40 per cent last year, way above the 25 per cent in the
previous year. It also said that there was no substantial growth in the
1300cc category and above segment of the auto market which marginally
increased by 1.9 per cent from 17,326 units in 2000 to 17,664 units this
year.

Financial performance

The collective sales volume registered an increase of
10 per cent from 36,572 units in 2000 to 40,377 units in 2001 — 20,434
units by Suzuki, 13,942 units by Toyota and 6,001 by Honda. In term of
percentage, Honda sold 25 per cent more cars in 2001 — 6,001 compared
to 4,812 last year; Toyota sold 16 per cent more units, 13,942 compared
to 11,944; sales volume of Suzuki increased marginally by 618 units to
20,434 or just 3 per cent.

Suzuki, Indus and Honda all managed to better their
sales revenue in 2001 over the previous year — from Rs 6.9 billion to
Rs 7.9 billion, from Rs 8.2 billion to Rs 9.05 billion, and from Rs 3.5
billion to Rs 4.5 billion respectively. Suzuki managed to improve its
operating profit by more than double from Rs 75 million last year to Rs
175 million while Indus improved it from Rs 337 million to Rs 437
million. Honda, however, registered a decline in operating profit from
Rs 262 million to Rs 254.5 million. It blamed many factors including a
substantial increase in administration and selling expenses due mainly
to three-fold increase in royalty.

All the three companies managed to improve their pre-
and post-tax profits, most notably Suzuki which posted after-tax profit
of Rs 87 million in 2001 compared to an after-tax loss of Rs 26.6
million last year. After-tax profits of Indus and Honda increased from
Rs 172 million to Rs 203 million and from Rs 191 million to Rs 204
million respectively.

Future prospects

The auto industry seems to have strong concerns about
the implementation of Trade Related Investment Measures (TRIMs).
Chairman of Pak Suzuki Yasuo Suzuki has said that while the present
disturbed condition in the region poses a threat to the economy, the
domestic automobile industry is facing a major threat from the
application of the WTO conditionalities which would lead to the
elimination of TRIMs. He said that in July this year WTO allowed
Pakistan, like some other countries, an extension in the transition
period up to December 31, 2001 and has recently also allowed extension
for another two years till December 2003. However, he added, the
industry has been seeking a longer extension till at least December
2006.

The domestic auto industry feels, for obvious
reasons, that TRIMs agreement does not apply to the relatively nascent
automobile industry of Pakistan and even if applicable the extension is
necessary to give time to the industry. Many others, however, feel that
absence of genuine competition, due primarily to highly discouraging
duties and taxes on Completely Built Up (CBU) units and ban imposed on
import of used cars, not only deprives people of a choice which is
rightfully theirs but also discourages improvement.